Ask HN: What are the algorithms used by predictions markets like Polymarket? I am curious how prediction markets like polymarket and kalshi work behind the scenes. I assume it's more like stock options than sports betting. Is there something like a market maker to help provide liquidity? Is it setting probabilities/prices using something like black-scholes? How would you design a very simple prediction market MVP? |
Some have a market maker, but usually that's not the case. The price is determined by the ratio between the binary options in the market. Ones with multiple potential outcomes can be reduced to binary easily for input into the black-scholes formula. " the algorithm" generally in cases like this are just the game theoretical incentive structure and human behavior does the rest.
MVP, that's a complex question. You've got to pick your stack, mode of payment, design an interface, back end, API, I'd start with just a server side back end to do all the computations and build the API and then integrate it to your payment method whether that's a bitcoin node or whatever, and then build an interface from there. If you're using ethereum or something like that, youre going to need to do it in a trustless sort of way, so that back end thing is going to be smart contracts and the API is going to be contract calls.
https://www.sciencedirect.com/book/9780444507440/handbook-of...
Not sure if you want to buy it but I got it from my Uni library.